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Jean Pisani-Ferry, a professor at the Hertie School of Governance (Berlin) and Sciences Po (Paris), holds the Tommaso Padoa-Schioppa chair at the European University Institute and is a Mercator senior fellow at Bruegel, a Brussels-based think tank.

When the Titanic tanks, whether the steel was too weak or the icebergs too big is perhaps the wrong question.
The truth is that there is no shortage of demand in the real world - never was, never will be.
The supply of goods and services to meet that demand needs to be organised and financed - mostly by recycling Capital Flight.
Bretton Woods Institutions were not designed to transform Infrastructural Finance in Emerging Economies into Value creation.
That demand still exists - and perhaps is the panacea for growth, both in the Emerging Economies as well as the Emerged Economies.
That unsatisfied demand is one key reason why Migration remains Issue # 1 worldwide - weakened economies are the key drivers.
Asset Prices need to dimension the concomitant debt mountains lest debt becomes unsustainable.
Multilateral Financial Institutions need a Template that captures Assets created by their Debts.
Multilateral Financial Institutions need a Template that recycles Capital Flight into repackaged Infrastructure Investment Portfolios.
Credit Enhancements - famously deployed in mass production of Residential Mortgages via Fannie Mae & Freddie Mac - perhaps pointers.
Demand will always exceed supply in the real world - it is human blinkers that renders them invisible.

Both theories are theoretical and subjective, including the BIS view. Looking at actual data several things are obvious. One, banks in OECD countries (andnow in China) are still shrinking their funding gaps and therefore not expanding lending or doing so only reluctantly and slowly. Banks have long since lerned to dictate effective demand for credit irrespective of the base rate of interest and learned to dictate the sectors thet wish to preference e.g. mortgages in trade deficit countries and industrial manufacture and trade finance in export surplus countries. The low global growth arises from the continuation of the same extreme imbalances in world trade as before the financial crisis recession but international private capital flows are not compensating for trade imbalances as they used to before the crisis. Banks continue to repatriate their balance sheets and there is a lot of capital flight from "South" to "north", from higher sovereign risk countries to lwer sovereign risk countries where real interest rates are negative and unproductive investment outsells productive investment.

Neither theory explain what is happening today as the only nations struggling are those referred to as BRIC. Russia's economy is under western sanction and therefore cannot grow,China's economy is still growing at a realistic 7% which is normal .This leaves Brazil and India with the Indian economy doing fairly well as noted.Brazil's faltering economy is threatened by capital flight and corruption which are unrelated to the theories being promoted

There is a perfectly simple explanation for why the recovery from the 2007-09 crash has been so long-drawn-out. In the US, for instance, the median household lost 18 years of their accumulated saving in the market crash. With interest rates close to zero, there is only way they can recoup that loss. And that is by increasing their saving rate. Now increasing saving rate reduces consumption and therefore reduces aggregate demand. If you assume that the entire US population, on average, lost 12 years of their net worth in the crash, it will require 12 years of reduced consumption to recoup that loss. More details in my book "Macroeconomics Redefined" at http://www.amazon.com/dp/B00ZX9O5XQ

Money has a role only in distributing the outcomes of growth. It can facilitate growth only by making effective distribution of incomes.

However, monetary policies and instruments have only helped distort the effective functioning of the real economy so far by enabling the illegitimate appropriation of incomes by those, who did not contribute to its generation

The biggest folly of modern day economists is to believe that the paper economy can pull the real economy up. While the paper economy has the potential to ruin the real economy, it will never have the power to lift the real economy up.

In my opinion, people are getting too addicted to using remote controls. Economists particularly, have developed a strange fixation for controlling the real economy with the help of an universal remote control called interest rates.

There are no magic wands in economics. Real growth takes place, when people keep buying more and more of goods and services and the money for increased buying comes from producing more and more of goods and services. Period!

There are dynamic structural equations within the real economy, while monetary instruments too are too generic to address specific structural problems of the real economy. Money is like water. It must flow to the fields, where real value addition will take place. Like floods and droughts can cause grave havocs, monetary mechanisms and instruments, which divert the flow of resources in to all kinds speculative activities, cause irreparable damage to the real economy.

The fundamental mistake that economists are making these days is to equate money capital to growth capital (physical production assets). Interest rates have to be factor payments for the investments in growth capital and must be determined by the level of productivity in the economy. Interest rates, which are not aligned to productivity levels in the economy can only distort the efficient functioning of the real economy.

I believe that the blame for the problems faced by the world economy must squarely fall on the economists and the politicians who make use of their wrong advice.

China’s economic slowdown is non-existent. Otherwise the article is thoughtful.
As to China: its debt fragilities are over-stated. They do not threaten the model. The proof is in the numbers. Not just headline growth, but stable and low inflation, strong wage growth and rising tax revenue. The St Louis Federal Reserve estimate that the multiplier on Chinese government spending is two. The economy is creating surplus capital to replace that which is destroyed. Finally, there's exports. Exports validate internal data: China is taking global market share. and prices are falling even as wages and currency rise. What's happening externally is surely happening internally.
The four largest, most profitable companies on earth are Chinese SOEs. China’s four biggest banks own the top four places in the world. Industrial and Commercial Bank of China tops the list for the third consecutive year: Sales $166.8 B, profits $44.8 B, assets $3,322 B and market value: of $278.3 B
A record 7.5 million students graduated from China's universities this year, highlighting the employment situation among fresh graduates as the country's economic growth slows.
New graduates born in the 1990s are earning an average of 2,687 yuan (US$420) per month in their first jobs, an increase of 244 yuan (US$38) from a year ago.
This will be another year of boring old 7% acceleration and see the biggest GDP growth in world history.

True, there is no economic slowdown in China; there is a reduction in the rate of growth, to perhaps as low as 4%, a number the United States would be happy to have. However, allowing state owned firms and local governments to borrow money cheaply, or raise money by selling farmers's land to investors, and then make investments which don't pay will, in the end will result in the sort of systemic stagnation which doomed the Soviet Union. Building cities no one lives in or having the capacity to produce 200% of the steel required by China will not work regardless of the willingness of the state to bail out firms and local governments.

Two respectable theories proposing opposite strategies to resolve a problem.... it sounds like a two variable equation with an impossible solution, which is exactly what it is. Growth cannot be overstimulated forever, and certainly not simply with the monetary policy tools of higher or lower interest rates.
Both theories have some valid points but they both omit the fundamental fact that economic theory never assumes the presence of an economic bubble in the first place. Monetary policy should be used to TEMPORARILY stimulate an economy that is somehow below potential, not used to FOREVER INFLATE ASSET PRICES. To sum it up, sustained growth from these level is simply impossible (at least in developed world) and you have two choices: 1) Secular Stagnation (Larry Summer's hypothesis); 2) sharp economic collapse, severe financial markets collapse, hopefully followed by more sustained growth (kinda like BIS hypothesis). But because Central Banks have been pushing market expectations too high in terms of growth and for too long, in both cases the adjustment process is going to be much more costly than needed.

Good summary. The problem with the secular stagnation explanation is that the recommended cure, through QE, just adds to the savings glut. Central Banks need to open a channel for monetary easing that does not directly feed asset prices, and to use that channel to stimulate demand for new goods and services as they sell off their bond portfolios. In the USA, the IRS' withholding system could easily provide that channel, if it were run backwards;i.e, with low interest FED loans to taxpayers in proportion to their withholding and collections through the withholding system.

QE is a lame duck policy anyway - because the banks are too scared to lend out the capital to main street so they loan it back to the government. If I give you a loan and you give me a loan both of the same amount - do we still have a loan - I would say no.

I'm going with the BIS explanation. Market-clearing real interest rates are negative because of policies, in the US, EU, and Japan, deliberately designed to support sovereign bond prices. Not clear how much this affects the rate of growth in economic transactions, there may be material causes for that that compete with financial ones in terms of significance.

If you strip away the fancy theories economies are just people doing useful things for each other. Yes, natural resources can play a role, but not really. To get the most out of your economy, you need the best and brightest given the resources they need to innovate and get everyone doing the most useful things possible. The main thing entrepreneurs need is capital. Economies perform badly when this capital becomes blocked up in other things - real estate, stock markets, government bonds. To get the capital to work, there should be an interest rate levied on any passive capital, with that interest being transferred to the most capable entrepreneurs. If that is not happening stagnation ensues and you can try any policy measure you want and you will just tread water.

It's not like "idle capital" is sitting in a hole in the ground. The financial system continues to make that capital available, for interest, to entrepreneurs. Among other things, massive amount of "idle capital" are already acting to lower borrowing rates for entrepreneurs.

"Economies perform badly when this capital becomes blocked up in other things - real estate, stock markets, government bonds."

Real estate will always be important to any economy, but perhaps you are right in cases where capital is tied up in INFLATED real estate.

Stock markets are the means whereby companies raise capital for their investments. Sure, there are also gamblers on the stock market, but it is a very proven and highly liquid way to get capital where it needs to go.

Government bonds serve a critical role for long term institutional investors, for example pension funds. Without them, your pension could be tied up in the stock market during a depression, and not only is that bad for pensioners, but it is also against the law in many countries for pension funds to be "too risky".

"To get the capital to work, there should be an interest rate levied on any passive capital,"

Companies are sitting on massive amounts of idle capital. But if there were any promising projects, wouldn't they have already be doing them? Moreover, in the face of the recent 2008 crisis, where nearly every major corporation in the Western world was faced the possibility of running out of cash and going bankrupt before the crisis was over, I think we can expect that companies will be careful to hold on to lots of cash for a very long time. When the next crisis hits, we will call them wise, but in the meantime, we should not force them to bet on risky projects by taxing "idle capital". That capital sits in banks, bonds, etc., and via financial markets will in any case find its way to one some project where someone needs to borrow money in the hope of earning a profit.

I believe the prime example of stagnant capital is the vast amount of money kept overseas by the USA's use of the Corporate Repatriation Tax instead of the Territorial Tax system. This also leads to the US's overall hesitancy to promote overseas investment to stimulate growth in the frontier and developing world. That lack of tax free repatriated profits, and thus the secondary tax income generated as it flows through the system, hinders the infrastructure and r & d spending so sorely lacking at home to stimulate more high paying jobs.

With the same vigor that many clamor for a $15 an hour minimum wage they should also clamor for a minimum $5+ a day per capita income worldwide. That in turn would bring renewed growth to Japan, the EU and elsewhere around the developed world.

Getting capital away from stagnant, passive locations in the economy and getting into dynamic, value creating areas of the economy is as important as having the correct amount of money at the right interest way. Taxing wealth and/or corporate savings at 1% and putting it into infrastructure in the US, or into small business loans, would go a long way toward putting idle capital to work.